MODULE 1: INTRODUCTION TO PATENT LAW

Study Note: This module should take approximately one hour to study.

Learning outcomes

After completing this module, you should be able to:

1. explain the difference between a patent, an invention and a discovery;

2. indicate the main reasons for patenting, if you want to leverage your inventions;

3. discuss the relationship between the patent system and economic growth.

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INTRODUCTION

1. Basic principles: patent, invention, and discovery

Patents are legal instruments intended to encourage innovation by providing limited exclusive
rights to the inventor (or his/her assignee) in return for the disclosure of the invention. The
underlying assumption being innovation is encouraged because an inventor (or his/her assignee)
can secure his/her rights, and therefore a higher probability of financial rewards in the marketplace.
In return, to get a patent, publication of the invention is mandatory. Therefore, allowing the ideas to
become public and forming breeding grounds for creation of many more new and useful inventions
through dissemination of the knowledge included in the published patent applications and/or
patents.

Patents and inventions: Throughout this course and in many publications and teachings on
intellectual property, the term ‘patent’ is often used synonymously with ‘invention’ for ease of
description and equivalence. However, the two terms are not synonymous. Patents are granted for
inventions. Differently put, an invention is the subject matter of a patent. 1 Consequently, a
‘patentability’ test is applied to test the invention.

Discoveries and inventions: It is also common to see the term ‘inventions’ being used
synonymously with ‘discoveries. Many patent laws stipulate that a discovery per se is not a
patentable invention. To illustrate the difference between the discoveries and inventions, Marie
Curie, for example, discovered the radioactive element radium, isolated it and established its
properties. This was a discovery that did not entitle her to a patent, as it did not meet the
requirements of novelty (it already existed in nature) and did not have industrial application.
Therefore, it was not an invention. However, in the case of the ‘discovery’ of X-rays by Rontgen, as
it consisted of an application for medical use of the properties of radio-active material, it was an
invention that could have been patented. The distinction between patentable and non-patentable
subject matter is therefore critical for mere discoveries of things that have existed in nature are not
considered patentable. Recent advances in technology, in particular in biotechnology, raise very
poignant questions relating to gene manipulation to create new genetic products.

2. Patents and free and fair market competition

A patent is the territorial right granted by the State to a right holder to exclude others from
commercially exploiting the invention for a limited period, in return for the disclosure of the
invention, so that others may also gain the benefit from it. The disclosure of the invention is thus an
important consideration in any patent granting procedure. This balance between the interest of the
holder of patent right and that of others has been discussed in the context of the competition
policy, polices promoting research activities and public health policy. It is crucial to find the most
appropriate balance to attain the maximum benefit for the public at large, considering all relevant
policies and circumstances of each country including the economic, social and legal background.

Because of the above-mentioned nature of the right to exclude others, patents are frequently
referred to as “monopolies.” However, properly balanced, most entrepreneurs, innovators, and
policy and law makers agree that “patents do not necessarily confer monopoly power on patent
rights holders, and most business conduct with respect to patents do not unreasonably restrain or
serve to monopolize markets. “Patent rights are not legal monopolies in the anti-trust sense of the
word… not every patent confers market power.” 2. In the core, both the patent laws and anti-trust
laws/ competition policies share the same primary objectives: “[t]he aims and objectives of patent
and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law are
complementary, as both are aimed at encouraging innovation, industry and competition.”

1 A Case Book on the Enforcement of Intellectual Property Rights. LTC Harms. WIPO Publication no. 791e. Available at
https://www.wipo.int/publications/en/details.jsp?id=4363&plang=EN
2 To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (A Report by the Federal Trade

Commission), 2 (October 2003)

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3. The economic impact of patents

Current knowledge regarding the relationship between the patent system and economic
development is still limited. Visible and demonstrable evidence of economic payoff attributable to
intellectual property (IP) protection (including patent protection) is currently not sufficiently
widespread. 3 It is difficult to analyze the role of the patent system in the economic development
process because of complexities in separating or desegregating the effects of IP protection from
other factors that influence developing economies. 4

In the absence of convincing evidence, different theories and arguments exist. Some argue that the
absence or weakness of patent protection encourages technology transfer and technological
learning through copying and imitation, while others argue that the patent system provides a
mechanism, which encourages technology transfer from abroad through direct investment or
licensing, and the indirect effects are effective means of technological learning. Other experts argue
that the role of patents in economic development is likely to be case-specific, in the context of both
variations from industry to industry and variations among countries. 5 Others, however, contend that
the strength or weakness of the IP situation has a strong effect on foreign direct investment (FDI) 6,
and that a low level of IP protection will preclude certain types of investment in various industries to
be made. Although there are many success stories that attest the importance and contribution of the
intellectual property system and specifically of the patent system to economic growth, there is not
just one road to innovation.

Irrespective of the ideas proposed by different authors, currently available trend data indicates a
growing activity in the patent marketplace and may partially be construed as an outcome of
increasing role of patents. Patent statistics are not sufficient evidence to explain the causal effect
of the patent system with regard to economic growth. However, available recent trends might
indicate a growing impact of patents on global economy and innovation.

Co-relation between patents, R&D expense and GDP: There appears to be a strong direct
correlation between the trend in resident patent applications, level of research and development
(R&D) expenditure, and GDP.

Resident patent applications per USD billion GDP for the top 10 origins, 2007 and 2017

Source: World Intellectual Property Indicators 2018. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2018.pdf

3 Keith E. Maskus, Intellectual Property Rights in the Global Economy (Washington, D.C.: Institute for International
Economics, August 2000).
4 Fred Abbott, e-mailed discussion paper (April 28, 1998), Intellectual Property Rights and Economic Development.
5 Ibid. Abbott also wrote “…Patent protection may have an impact on the development of a pharmaceutical industry that
is different than its effects on the development of an automobile industry. Patent protection is likely to have a different
effect on the development of a newly-industrialized economy as compared with a least developed economy.”
6 Maskus, Intellectual Property Rights in the Global Economy, table 4.9, 126 (source: Mansfield 1994).

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Source: National Science Foundation, National Center for Science and Engineering Statistics estimates, August 2017. Available:
https://nsf.gov/statistics/2018/nsb20181/assets/1387/ overview.pdf

Growth in patent applications: There has been consistent growth in the number of patent
applications filed year after year, as shown below.
Trend in patent applications worldwide, 2003-2017

7
Source: World Intellectual Property Indicators 2018. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2018.pdf

Increased economic activities: The role of IP, particularly patents, in marketplace has significantly
increased over last few decades. Evidence suggests more frequent licensing of IP rights and the
emergence of new technology market intermediaries. The figure below depicts the growth of cross-
border licensing trade in the world economy, showing an acceleration of such trade since the
1990s. In nominal terms, international royalty and licensing fee (RLF) receipts increased from USD
2.8 billion in 1970 to USD 27 billion in 1990, and to approximately USD 300 billion in 2015.

7 China’s 2017 data are not comparable with its previous years’ data due to the new way in which the IP office of China
now counts its applications data. Prior to 2017, it included all applications received; however, starting in 2017, China’s
application count data include only those applications for which the office has received the necessary application fees.
Due to this break in the data series and to the large number of filings in China, it is not possible to report an accurate
2017 growth rate at world level (see the data description section). World totals are WIPO estimates using data
covering 156 patent offices. These totals include applications filed directly with national and regional offices and
applications entering offices through the Patent Cooperation Treaty national phase (where applicable).

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RFL receipts in payments, in USD billlion and as share of trade

Source: Economic Research Working Paper No. 37. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_econstat_wp_37.pdf

New players & economic impact: Newer technology market intermediaries have emerged, such as
IP clearinghouses, exchanges, auctions and brokerages. Furthermore, another rapidly growing
form of intermediation over the last decades has been the establishment of technology transfer
offices (TTOs) at universities and public research organizations (PROs). Universities and PROs
play a key role in national innovation systems and over some decades have increased their role in
the invention generation and technology transfer, as illustrated in terms of filed PCT applications 8
and licensing details in the United States of America in the graphs depicted below.

Source: World Intellectual Property Report: The changing Face of Innovation, 2011. Available:
https://www.wipo.int/edocs/pubdocs/en/intproperty/944/wipo_pub_944_2011.pdf

8 A patent application filed under Patent Cooperation Treaty.

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Change in Core Measures of Technology Transfer Activity

Source: Vicki Loise and Ashley J. Stevens, The Bayh-Dole Act turns 30. Sci. Transl. Med. 2, 52cm27 (2010). Available:
https://stm.sciencemag.org/content/2/52/52cm27.abstract

The changing trend in global economy, driven by both corporate and universities/ PRO patenting
activities, has certainly allowed for more technology transfer and furthered economic activities (as
indicated above), creation of new jobs for example in R&D sector (representative data for US
based MNCs included below), and availability of newer products in the market.

Source: Research & Development, Innovation, and the Science and Engineering Workforce, 2012. Available:
http://nsf.gov/nsb/publications/2012/nsb1203.pdf

Patenting activities have become increasingly international. The ratio of patent applications filed by
foreigners within the total patent application in a country varies significantly from one country to
another, reflecting many factors, including the technological capacity of the country concerned and
attractiveness of the market for foreign technology holders. In many countries, patent applications
made and patents held by their residents (domestic applications or patents) are limited. Domestic

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applications accounted only for a small percentage of total patent applications and the filings are
usually dominated by non-resident applications (shown below).

Patent applications at offices of selected low- and middle-income countries, 2017

Source: World Intellectual Property Indicators 2018. Available: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2018.pdf

Thus, the role of the patent system is less visible to domestic users of the patent system. A number
of grounds, including lack of awareness about the potential benefits of the patent system by
companies, universities and local research institutions, can explain the reason for the low level of
patenting in developing countries by their nationals and residents 9.

Self-Assessment Question (SAQ)

SAQ 1: Discuss the relation between the patent system and the economic growth of a
country.

Type your answer here:

Model Answer SAQ 1:

Current knowledge regarding the importance of IP in economic development is still limited. Some
argue that the absence or weakness of patent protection encourages technology transfer and
technological learning through copying and imitation. Others argue that:

9 WIPO Patent Agenda Study by Mr. Getachew Mengistie, Acting Director General of the Ethiopian Intellectual Property
Office, A/39/13 Add.1 available at http://www.wipo.int/meetings/en/doc_details.jsp?doc_id=17555

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 - the patent system provides a mechanism which encourages technology transfer from
abroad through direct investment or licensing, and the indirect effects are an effective
means of technological learning;

- the role of the patent system in economic development is likely to be case-specific, in the
context of both variations from industry to industry and variations among countries; and

- the strength or weakness of the IP (e.g., patent) system has a strong effect on foreign direct
investment, and that a low level of IP protection will preclude certain types of investment in
various industries to be made.

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4. Impact of patents on business and daily life

Innovative and creative ideas are at the heart of most successful businesses. Ideas by themselves,
however, have little value. They need to be developed, turned into innovative products or services,
and commercialized successfully to enable enterprises, particularly small and medium-sized
enterprises (SMEs), to reap the benefits of the innovation and creativity. Patents can be crucial for
turning innovative ideas and inventions into competitive products that significantly increase profit
margins.

The reasons for patenting inventions can be summarized as follows:

• Exclusive rights - patents provide exclusive rights which usually allow the right holder to
prevent others from commercially using and exploiting the invention, without the consent of the
right holder, for twenty years from the date of filing of the patent application;

• Strong market position - through these exclusive rights, you may be able to establish yourself
in the market as the pre-eminent player;

• Higher returns on investments - having invested a considerable amount of money and time in
developing innovative products, the right holder could, under the umbrella of these exclusive
rights, commercialize the invention, which may enable the right holder to obtain higher returns
on investments;

• Opportunity to license or sell the invention - if you choose not to exploit the patented invention
yourself, you may sell it or license it to another enterprise which may commercialize a product
using your patented invention. This will be a source of income for the right holder (you);

• Increase in negotiating power - if your enterprise is in the process of acquiring the rights to use
the patents of another enterprise, through a licensing contract, your patent portfolio will
enhance your bargaining power. That is to say, your patents may prove to be of considerable
interest to the enterprise with whom you are negotiating and you could enter into a cross-
licensing arrangement where, simply put, the patent rights could be exchanged between your
enterprise and the other;

• Positive image for your enterprise - business partners, investors and shareholders may
perceive patent portfolios as a demonstration of the high level of expertise, specialization and
technological capacity within your company. This may prove useful for raising funds, finding
business partners and raising your company’s market value;

• If not patented by yourself, competitors will take advantage of your invention - if the product is
successful, many other competitor firms will be tempted to make the same product by using
your invention but without having to pay for such use. Larger enterprises may take advantage
of scale economies to produce the product more cheaply and compete at a more favorable
market price. This may considerably reduce your company’s market share for that product.
Even small competing enterprises can produce the same product and often sell it at a lower
price as they do not have to recoup research and development costs incurred by the right
holder.

• Finally, as you will see later on this course, there are other ways of protecting innovations,
besides patenting. Trade secret protection, for example, may have a number of advantages
compared with patent protection. However, one of the weaknesses of trade secret protection is
that somebody else - who may have developed the same or an equivalent invention later - may
get a patent on such invention, and legitimately exclude your enterprise from the market,
limiting its activities to the continuation of prior use, where the patent legislation provides for
such exception, or ask your enterprise to pay a licensing fee for using the patented invention.

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Activity 1

Read the following text relating to a company’s approach to protection and enforcement of
their patent portfolio.

Case study: All our patents belong to you

Tesla, Inc. is an American motor and energy company that has become famous mainly for
the manufacturing of electric vehicles and his CEO, the entrepreneur Elon Musk. Named in
honor of famous 19th century engineer, Nikola Tesla, the company set out to find innovative
alternative in the electric vehicle industry to address the carbon crisis, providing sustainable
transportation and clean technology.

From its creation in 2003, Tesla has relied on the protection of intellectual property rights,
having filed over 481 patents and growing1 at the United States Patent and Trademark
Office (USPTO) to this date. On the Annual Report for the end of the fiscal year of 2012,
their intellectual property policy was very protectionist of their IP assets, affirming: “Our
success depends, at least in part, on our ability to protect our core technology and
intellectual property. To accomplish this, we rely on a combination of patents, patent
applications, trade secrets, including know-how, employee and third party nondisclosure
agreements, copyright laws, trademarks, intellectual property licenses and other contractual
rights to establish and protect our proprietary rights in our technology. (…) We intend to
continue to file additional patent applications with respect to our technology. We do not
know whether any of our pending patent applications will result in the issuance of patents or
whether the examination process will require us to narrow our claims. Even if granted, there
can be no assurance that these pending patent applications will provide us with protection”.

On 12th June 2014, Elon Musk announced in a blog post that “all our patents belong to
you”, explaining that, in the spirit of the open source movement and for the advancement of
electric vehicle technology, the company had decided to not initiate patent lawsuits against
anyone using their technology in good faith. Before this, the lobby of the Palo Alto
headquarters had a wall with all the Tesla patents. For this reason, the blog post starts by
announcing that this physical and metaphorical wall of patents had come down, and while
they filed patent applications to stop others from copying their technology, they believe they
can be used to stifle progress. Finally, the company hoped to encourage the rapid
advancement of electric car technology and to motivate talented engineers to innovate
based on their IP. They seek to build a bigger market for electric cars and to have company
for building an infrastructure for it, such as charging stations and battery technology.

Since then, and as can be observed in the 2018 end of the fiscal year Annual Report, they
recognize the new approach, stating that: “As part of our business, we seek to protect our
intellectual property rights such as with respect to patents, trademarks, copyrights, trade
secrets, including through employee and third party nondisclosure agreements, and other
contractual arrangements. Additionally, we previously announced a patent policy in which
we irrevocably pledged that we will not initiate a lawsuit against any party for infringing our
patents through activity relating to electric vehicles or related equipment for so long as such
party is acting in good faith. We made this pledge in order to encourage the advancement
of a common, rapidly-evolving platform for electric vehicles, thereby benefiting ourselves,
other companies making electric vehicles, and the world”.

Open innovation is not mutually exclusive with the patent system, contrary to what is
believed. Any patent holder can use their patent for any purpose, including publicity and
marketing, such as done by Tesla to generate good will. It can be seen the company
believed that the goodwill from its offer not to sue good faith third parties for infringements
of its patents is more beneficial to its business than litigation can ever be. Among the
reasons, it can be to avoid the cost of litigation, but also to invite more knowledge on the
next developments.

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 Self-Assessment Question (SAQ)
SAQ 2: Discuss the role of the patent system in view of this case and the companies’ policy.

Type your answer here:

Model Answer SAQ 2:

The patent system provides the possibility to protect inventions, but it also gives right-holders great
freedom for choosing what to do with their patents, including how to enforce the rights derived from
them. In this case, we observe that the patent system helped the company build a considerably
sized patent portfolio, along with trade secrets and know-how, all relating to electric vehicle
technology. Therefore, by continuing to file applications, Tesla shows it holds intellectual property
protection important for its business strategy. However, by choosing to not initiate legal action
against parties acting in good faith, they show their patents can also be a tool for building
knowledge in collaboration with others.

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Activity 2

Read the following success story where intellectual property, and specifically the patent system,
were key for incentivizing and promoting innovation.

Case study: Using IP to Attract Investors

The Emergency Autotransfusion Set (EAT-SET) is the result of the inventive work of Dr. Oviemo
Ovadje of the Military Hospital at Ikoyi in Lagos, Nigeria. The invention facilitates the recovery
of blood from a body cavity during operations and re-infusing it back into the patient body after
filtration. Dr. Ovadje started the EAT-SET project in 1989 with a meager sum of 120 USD. With
the support of the Nigerian Government which provided the necessary research environment,
the project was able to attract the United Nations Development Program (UNDP) which
provided financial resources for research, development, and testing of the project.

The World Health Organization (WHO) participated as the executing agency. WIPO and the
Organization of Africa Unity (OAU) also recognized the invention of Dr. Ovadje. In 1995 he was
declared the best African scientist and awarded the 1995 WIPO/OAU gold medal for scientific
work designed to save women who usually die from abnormal pregnancy (ectopic gestation).
Dr. Ovadje acquired patent protection for his invention and the EAT-SET device has been
protected by patents in nine foreign countries. EAT-SET Industries was established in April
2001 mainly to facilitate the marketing of the EAT-SET medical device. Although it is still in its
infancy, the company has already attracted several public and private investors and its
investments hitherto amount to almost 100,000 US dollars. Dr. Ovadje believes that the patents
held by EAT-SET Industries have played a key role in boosting the confidence of investors.
According to Dr. Ovadje, investors are willing to inject about one million US dollars into the
company.

Source : https://www.wipo.int/ipadvantage/en/details.jsp?id=2545

Self-Assessment Question (SAQ)

SAQ 3: Explain in a few words what the invention is and what problem it sets to solve.

Type your answer here:

Model Answer SAQ 3:

The invention is a medical device to facilitate safer blood transfusions, by reutilizing the patient’s
own blood, and is particularly intended for pregnant women who experience problems arising from
ectopic pregnancies. The device seeks to reduce the morbidity and mortality of such group of
women. This condition usually leads to internal hemorrhage; therefore, this invention provides a
low-cost option for performing blood transfusions because it does not rely on donated blood, which
has transactional costs.

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Useful Resources

(a) Carsten Fink and Keith E. Maskus, Intellectual Property and Development - Lessons from
Recent Economic Research, (a co-publication by the World Bank and the Oxford University Press,
2005), Available at: http://siteresources.worldbank.org/INTRANETTRADE/Resources/Pubs/IPRs-
book.pdf.

(b) Carlos A. Primo Braga, Carsten Fink and Claudia Paz Sepúlveda, Intellectual Property Rights
and Economic Development, (1998), Available at:
http://www.iatp.org/files/Intellectual_Property_Rights_and_Economic_Deve.pdf .

(c) WIPO Translate, Available at: https://www.wipo.int/patentscope/en/wipo-translate/

(d) Global Brand Database, Available at: https://www.wipo.int/branddb/en/

(e) International Patent Classification, Available at:

https://www.wipo.int/classifications/ipc/ipcpub/?notion=scheme&version=20180101&symbol=none
&menulang=en&lang=en&viewmode=f&fipcpc=no&showdeleted=yes&indexes=no&headings=yes&
notes=yes&direction=o2n&initial=A&cwid=none&tree=no&searchmode=advance

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